Major stock price indexes moved above their highest levels of the previous 20 trading days on news that the Fed is willing to print enough paper money to buy everything in an all-out effort to save the failing financial system and the economy.
Bold actions can have big consequences, not all of them intended.
The U.S. dollar fell steeply and gold rose steeply, as one might expect in anticipation of massive currency inflation.
The S&P 500 reached an intraday high of 803.04. That is close enough to count as fulfillment of upside targets in the 804-807 zone. This zone includes a Fibonacci 50% retracement of the January-March 2009 decline, the 50-day simple moving average, and the low of 1/21/2009. The 803-807 zone may offer resistance to the bounce.
This bounce has lifted the S&P 500 by 17.4%, based on closing prices. That makes it the third largest bounce since the top on 10/10/07. No previous Minor Ripple to the upside disturbed the Primary Tide Trend, and all such bounces have been followed by lower lows over the past 17 months, since October 10, 2007.
The short-term trend appears to have limited potential from current elevated levels. Reward/Risk appears unfavorable for the Bulls. The longer-term trends are unchanged. Since 11/21/07, I have been consistently Bearish on the major trend of the stock market, based partly on CATS (the Colby Algorithmic Timing System, see graph: http://www.robertwcolby.com/AlgorithmicTimingSystem.jpg) and partly on my enhanced interpretation of Dow Theory. Financial risks remain elevated. Prudent investors should focus on capital preservation.
On Wednesday, major stock price indexes opened lower and trended down until 10:35 a.m., which proved to be the low of the day. By early afternoon, just ahead of the Fed announcement, prices had fully recovered. From 2:15 to 2:55 p.m., stocks soared on news that the FOMC dramatically cranked up its credit easing. But stocks sagged in late trading as traders reflected on what such surprising Fed easing might imply about the actual current state of the financial system and economy, as well as the longer term risks of such money supply inflation. The large-cap Standard & Poor\'s 500 cash index (794.35) rose 16.23 points, or 2.09%, to close above its open, midpoint, and previous close. Total NYSE volume jumped 48%, as traders scrambled feverishly to keep up with the news.
Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.
